Short Sale Vs. Bankruptcy

When faced with foreclosure many people tend to turn to bankruptcy as an option of solving their problem

. Now there is a large difference that many of the "professionals" fail to tell you. Filing for bankruptcy will consolidate your debt and can wipe out your liabilities, but it will not save you from having a FORECLOSURE put onto your credit report. Instead now you will have both a bankruptcy and a foreclosure on your credit. If you plan on eventually turning back your property you WILL STILL HAVE A FORECLOSURE ON YOUR CREDIT REPORT. Trying to conduct a short sale while in bankruptcy can hold up the process, but it is possible. My best advice is to consult with a knowledgeable bankruptcy attorney prior to making any decision; especially should you have additional debt that you are unable to control besides your property. One key point to keep in mind is that if your home is the only debt that is creating an uncontrollable situation for you then a short sale option is most likely your best bet vs. a bankruptcy.

What can qualify me for a short sale?

Many people can qualify for a short sale but for most lenders they will want to see some type of financial hardship. One thing you must remember that while a short sale may bail you out of a foreclosure, the lender can lose lots of money so not all short sales will be accepted. If the process were that easy everybody would be doing it themselves. The reasons why short sale are somewhat unheard of are because nobody knows about them or wants to take the time to conduct them. Here are a few situations that could make a property short sale qualified.

What can qualify me for a short sale?

Many people can qualify for a short sale but for most lenders they will want to see some type of financial hardship. One thing you must remember that while a short sale may bail you out of a foreclosure, the lender can lose lots of money so not all short sale will be accepted. If the process were that easy everybody would be doing it themselves. The reasons why short sale are somewhat unheard of are because nobody knows about them or wants to take the time to conduct them. Here are a few situations that could make a property short sale qualified.

"Borrowers unable to keep up with current mortgage payments

"Divorce

"Death

"Relocation

"Over valued properties

"Predatory lending situations/mortgage fraud

"Loss of job

"Unable to sell your property due to market conditions

"Loan amount is higher than you can currently sell your property

"and many other reasons"

What happens to the lost money?

What many people tend to ask next is what happens to all the money that is never paid back to the bank? The result of a lender taking less money than what they are owed is called a deficiency. There are several ways a lender can handle a deficiency amount.

Forgiveness "" The majority of the time when a short sale occurs the deficiency amount is forgiven believe it or not.

Promissory Note "" A lender can issue the borrower a promissory note which specifies that the borrower can pay back the amount owed over an extended period of time say 15-20 years in the form of monthly payments.

1099 Tax Form "" The lender may choose to tax the borrower on the deficiency amount as a capital gains tax. They basically consider their loss as your gain, therefore making it taxable. In many circumstances the client involved in the short sale is in a financial hardship so may be able to claim insolvency. This can eliminate this obligation but you should consult with a good attorney or tax professional.

Cash Contribution "" Sometimes the lender may just ask for cash at the time of closing ranging anywhere from $200-$5,000.

One point to remember is that these are remedies for the lender to cure their loss. Once you speak and consult with a professional there are also remedies you as a homeowner are given as well. Since each situation is different results will vary. The most important part is that none of these listed above are any worse than having a foreclosure on your credit.

by: InfinityPlus Properties

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